What would you do if the taxman (or woman) came to visit you today? Would you have what he/she asks for? Do you have your documents and records in an easy to find place? Okay, if it’s not easy to find, do you at least know where everything is? Yes . No. . Kindof . . Not sure . . .
Being able to fend off the IRS isn’t the only reason to have your documents and records organized. Your state department of revenue can audit you as well. Your shareholders or partners can call for an independent audit at any time. Then there are the more mundane reasons such as obtaining a line of credit or an outright business loan, finding an investor or partner, budgeting to purchase a large piece of equipment, landing a government contract or just growing your business.
Did you know you must keep your documents, receipts, invoices and other records for at least three years? The IRS, in particular, can audit as far back as three years. Some clients will request that you keep documents pertaining to their projects for seven or ten years particularly in the environmental field. I keep my records for seven years. I know it takes up room to store these items especially if your business produces masses of paperwork. You may want to consider scanning your documents to disk or zip drive. At any rate, you must keep these items around.
Sole proprietors including freelancers and independent contractors have a smaller list of documents to keep track of than corporations and partnerships. However, all businesses must keep the following:
* Bank statements including Paypal and other online payment services (a periodic print out of the account will work).
* Check carbons or cancelled checks and deposit slips plus ATM cash withdrawal slips.
* Credit Card statements and receipts for purchases put on each card. If you purchase an item online, remember to print the receipt before leaving the order confirmation page. That is your receipt.
* A/P invoices (bills). Yes, you must keep a copy of the bill itself. A cancelled check isn’t enough to prove the expense.
* A/R invoices (documentation for anytime you bill a customer or client).
* Monthly, quarterly and annual tax returns with supporting documents including payroll and sales tax.
* Receipts for all purchases (anything you claim as a deduction on your taxes must have a receipt to go with it including mileage).
* 1099s sent to you by your clients as well as those you send to your subcontractors.
* Records of barter deals (income and expense).
* Your business license for city, county and/or state as well as your EIN, if you have one.
* Employee records (including company officers) such as forms W-4 and I-9 as well as compensation agreements. If your state has income tax, you will also need the appropriate withholding form. Employee records must be kept for 4 years after the termination (voluntary or not) of the employee.
* Timesheets or verification of commissions paid to employees.
* Expense reports and employee reimbursement records.
* Unemployment and worker’s compensation claims (must be kept for at least 4 years).
* Travel documentation including dates, meetings and outcomes.
* Contracts for subcontractors, freelancers and other vendors.
* Contracts for clients and customers.
* Papers concerning lease and loan agreements.
* Financial statements including Profit-Loss and Balance Sheets.
C-Corporations and S-Corporations as well as LLPs and LLCs must also have:
* Incorporation or partnership papers.
* Stock Certificates (completed and logged).
* Minutes of Board meetings (even if it’s only you meeting with yourself).
* Memos and letters concerning the disposition of the firm, policies and procedures.
There are many things that can happen due to the lack of records and none of them are good. It is much easier to keep your documents together as you go week-by-week, month-by-month rather than having to rebuild, remember and face the taxman unprepared.
Suzette Flemming is the CEO / CFO of Flemming Business Services.
Providing financial direction to businesses since 1994. Learn how
to save money and increase your bottom line by subscribing to our
free newsletter Make the Most of Your Money at
http://www.FlemmingBusinessServices.com or send an email to
newsletter@flemmingbusinessservices.com or give us a call with
questions at (425) 432-5870.
